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Instructors’ Introduction to the Course And Notes for Opening Lecture
INSTRUCTORS’ INTRODUCTION Each Unit has a Lesson Plan based on professional texts and materials created by previous Instructors over the past 4 years. The Lesson Plan reflects the content that should be covered to assure REAP graduates and their future employers that they have been exposed to property management from the above perspectives, both in class and on site visits. New Instructors should therefore use the Lesson Plans and the text as a guide to recommended lecture content. The basic text for this year’s Class will be Professional Real Estate Development -The ULI Guide to the Business (2nd Ed. 2003). REAP is working with ULI to have a complimentary copy furnished to all Instructors and students. The Instructor should not feel restricted to the Lesson Plan, but is encouraged to go beyond the abstract concepts with frequent illustrations from personal experience. Your anecdotal accounts give context to the lesson and make the class enjoyable for students and Instructors. You should provide copies of examples from your portfolio (redacted to protect proprietary information) and topical articles from the popular press and trade publications. REAP’s objective is to have all its Lesson Plans on its website before Class begins in May, so Instructors and students can see the larger picture and look ahead. We are also hoping to have the ability to post your assignments there as well. The following is a summary description of the Units. As with any introductory course, there are no bright lines between them.
COURSE UNITS
Office Building Management
Leasing (Retail and/or Office)
Development and Renovation
Marketing and Retailing
Financial Analysis and Budgets • Introduction to Time Value of Money…Net Present Value…Discounted Cash Flow…Projecting long-term performance with 10-Year pro forma…Variance Analysis…Capitalization of Income…Value = NOI / Cap Rate
UNIT STRUCTURE Second Week: Site Visit -- No class – students must visit a property in the Instructor’s portfolio and complete the assignment. The Instructor decides whether the visit is guided and scheduled for a specific time, or whether the students visit on their own. (There is no site visit for Financial Analysis and Budgets.) Third Week: Assignments must be turned in at beginning of class, to be graded by the Instructor and returned to the students within the next 2 weeks. The class period should be used to discuss the assignment, with several students presenting their conclusions for constructive criticism by the class. The Instructor can cover other areas not covered during the First Week.
GRADING BY INSTRUCTORS
Washington Michael J. Bush, Executive Director
NOTES FOR INTRODUCTORY LECTURE
The REAP course focuses on how the property manager preserves and enhances value through increasing net operating income and decreasing risk, physical and economic.
Value = Net Operating Income / Capitalization Rate This may seem like a sophisticated focus for a course intended for students who may have had no exposure to the industry. However, we have found that repeated emphasis on this formula (after it has been explained, of course) helps tie all the Units to each other and brings the class to an intensely practical viewpoint on all issues quite early in the course. Instructors will find many oversimplifications in what follows; keep in mind that this is the introduction, and that the formula will be repeated and expanded many times over the semester. The formula should be explained using an example, like an apartment unit, that students can relate to easily. The formula should be put on the board at the beginning of every class: V = NOI / Cap Rate Real estate, whether it is an office building, shopping center, or an apartment, and regardless of location, has no value except the income it produces. Net operating income comes from the rents, less the expenses incurred to produce the rents. Rents less expenses = Net Operating Income = NOI NOI = Rents actually received minus expenses actually incurred The Instructor may find it helpful to list factors that affect income and expenses.
Income -- Factors affecting rent that tenants will agree to pay and that owner receives:
Expenses – Factors affecting rent owner will actually keep: Generally speaking, increased rental rates and lower expenses result in higher NOI.
Value comes from capitalizing the annual NOI. Cap Rate will be explained in more detail in the Financial Analysis Unit. At this point, it is enough to point out that, generally speaking, the formula always yields these results:
Higher NOI = Greater Value The Instructor can extend the apartment model below, using it to point out how the same property can have different values depending on the tenants. The example (again, greatly oversimplified) contrasts faculty and student housing.
Example A – Student Housing
Annual Rental Income = $7200 - $600 = $6600
Example B – Faculty Housing
Annual Rental Income = $7200 - $0 = $7200 Each Unit of the Course ties back to this basic approach.
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